Tariff Policy - Fits of liberalism

Throughout World War I, Wilson strove to have the United States play a
lead role in planning the peace, which, in an economic sense, he based on
an open world economy of free-flowing trade and investment. Such a
structure would boost American power and profits (exports of manufactures
skyrocketed from 1913 to 1920), yet Wilson looked beyond realism to the
ideological elements of a new world order of democracy and liberal
capitalism. A major element of his Fourteen Points involved accessible and
expanded commercial relations. In this plan, tariffs would be reduced.
Without cuts in duties, claimed businessmen, bankers, and the
administration, U.S. imports of European products would flag, preventing
European recovery from the war. Without economic revival, the Europeans
would never stabilize their exchange rates or pay off their debts. The
downward economic spiral not only would make them feeble trade partners
but also render them susceptible to vicious cycles of political
instability caused by economic uncertainties. That would jeopardize the
peace and Wilson's grand scheme of internationalism. Lower duties
became a general foreign policy objective for international stability, a
watershed in thinking about tariff policy.

That was not the view of Congress, in which protectionists, farmers, and
small business demanded a higher tariff wall. Once Congress rejected the
Versailles Treaty, turning aside Wilson's internationalism,
legislators then responded to the postwar recession in 1920 by trying to
boost commodity prices for farmers. Wilson vetoed emergency tariff
legislation to jack duties on agricultural products as a violation of his
ideological crusade for trade liberalization, but in May 1921, his
successor, President Warren Harding, signed a similar law into effect,
placing the prosperity of American producers before that of foreigners.
This pleased farmers and small manufacturers who feared an influx of cheap
European chemical goods, and particularly stiff competition from German
producers. The emergency tariff set the tone for the rest of the decade:
reluctance to overhaul tariff (and loan) policies in the direction of
liberalism. Tariff policy remained a part of more general strategic and
economic interests, but not the impetus to a shift to internationalism in
foreign policy. Higher tariffs, like the rejection of the League of
Nations, indicated that domestic priorities still won out over foreign
policy objectives.

During the 1920s and into the Great Depression, the United States searched
for export markets while Congress maintained high tariffs. This posed a
paradox in that the nation sought freer trade overseas but frowned on more
imports at home. Foreign trade expansion became a cardinal aim of
Secretary of Commerce Herbert Hoover, who viewed commerce as "the
lifeblood of modern civilization." Thus, while the Fordney-McCumber
Tariff of 1922 raised duty rates back to their prewar levels, Hoover
recognized that peace and prosperity were interlocked. Administration
leaders viewed the world economy as an interdependent network of American,
European, small-power, and colonial needs and interests. It was no
surprise, then, that the Republican leaders who ran the country did not
shy away from the rise in imports. The inflow only enhanced American
exports abroad and made it easier to solve thorny issues like reparations
and debt repayments that poisoned international political affairs. Yet the
paradox remained: the aspiration to spread capitalist liberal principles
worldwide did not match policy, as protectionism remained strong. Small
industry and farmers still clashed with international bankers and
diplomats over the tactics of protecting American markets but expanding in
global markets. Until 1934, this deadlock prevented the trade
liberalization necessary for world economic recovery. America's
actions did not live up to its potential of global leadership.

On the internationalist side of the ledger, several positive steps pleased
U.S. officials but fell short of their goals. First, the acceptance of
unconditional most-favored-nation status for America's trade
partners ensured foreigners that their goods would be treated equally in
every nation that had an agreement with the United States. Washington
abandoned its preferential treatment in Brazil, for example, for equality
of treatment in all other markets. Frank W. Taussig, the first chairman of
the new Tariff Commission, had urged Wilson to push this approach as one
way to open up foreign markets. Although the commission did not rule on
revising conditional MFN status at the end of the war, it set the stage
for further pressure toward this end. Using Fordney-McCumber's
provision for retaliating against foreign discrimination, the State
Department switched to unconditional MFN in 1923 in order to dampen
antagonism in trade relations. Fairness, rather than special concessions,
would avoid diplomatic misunderstandings and help assure American exports
of equal treatment.

But this revolution in tariff policy coincided with growing discriminatory
policies in Europe. By 1930, the State Department had inserted
unconditional MFN status provisions into nearly half of its commercial
treaties with forty-three nations. Fifteen additional executive agreements
with trade partners included the equality-of-treatment principle. Yet
countries in Europe and Central America maintained their unfair
protectionism. In addition, the British Empire continued to advance its
imperial preferential system of tariffs, showing Europe's embrace
of restrictive trade principles and practices. In America's most
important markets—Canada, Britain, and France—discrimination
remained, preventing market openings for U.S. exports. These nations
insisted on holding to protectionism until they received reciprocal
concessions in the huge American market. Thus, the late-nineteenth-century
vogue for reciprocity treaties returned a quarter century later.

A second liberal policy involved successfully lobbying in Congress to
strengthen the Tariff Commission, the nonpartisan body of experts created
in the Wilson years that advised the president on the height of tariffs.
Under the urging of Hoover and Tariff Commissioner William Culbertson,
Congress also accepted a flexible tariff policy and
"scientific" protectionism, giving the president authority
to adjust customs according to production costs in America and overseas.
These measures, embodied in the Fordney-McCumber Tariff Act, attempted to
take tariff-setting out of the hands of the logrolling Congress and place
it with the unbiased Tariff Commission, which would act according to
national and international economic needs. But the commission did not
avail itself of the flexible tariff policy, and duties increased. The
Republican presidents of the 1920s refused to confront Congress on
protectionism. Their pursuit of international stability and trade
expansion through the efficacy of private market forces came up lame.